The Carillion Problem

This week has seen the fall of the ‘sick old man’ that was Carillion. The UK’s second largest construction firm, which holds hundreds of government contracts and employs tens of thousands of workers has finally collapsed. The fall-out will, I have no doubt, be immense and raises some important if troubling questions.

First, there is the question what will happen to the hundreds if not thousands of small businesses Carillion has contracted to undertake some of its private sector contracts? Some are, it has been revealed, owed payments totalling millions of pounds, which the company has been unable to pay due to its continuing financial difficulties. Some firms have already had to begin redundancy processes, having resigned themselves to the all too clear fact that Carillion will take the money they are owed down with it. There is, for what its worth to both Carillion’s employees and former contractors, to be an investigation into the conduct of the company’s bosses. The questions that need to be answered are all to apparent: for one, why Carillion continued to take-on new contracts despite profit warning as early as summer last year?

But then, why was a company with such a crippling hole in its pocket given them in the first place? This is a particularly potent question when it comes to the government contracts the company was allowed to retain and continued to be given throughout the period of financial difficulty. It has been quite clear for months that the company was likely to, in some way falter financially yet ministers still saw fit to award it a myriad of contracts. Its like asking a builder who you know might very soon go bust, to renovate your lounge, upgrade your bathroom, re-design the kitchen and build the new conservatory; with your help of course! The folly in such actions is evident and no sane individual would take such a blatant risk, particularly with public money. Yet, our esteemed government seemed to think such reckless action on a macro scale advisable…

Indeed, the fact that the government gave Carillion so many contracts over the past few years also in itself raises issues. For one, what happened to the notion of competition? By handing the same rather precariously balanced construction firm so many contracts, the government effectively hamstringed itself, and will now have to take them over, and in the process recoup and money used for the task…… we hope. But why were so many contracts handed to Carillion? What was the nature of the relationship between ministers and the walking corpse that was seemingly their bed-fellow? The selection process must come under scrutiny, but I have little doubt this will be resisted by ministers who will want to contain the cataclysm as much as possible, particularly if its roots are within government.

But what of the future? The Carillion problem really does speak volumes to the way government have handled public-private partnerships. In shackling themselves so closely to one large firm, ministers in essence created the leviathan that collapsed on Monday. This case should serve as a warning to future ministers over how not to handle such contracts, and makes plain the notion of having many contractors, both competing and carrying out work is both more effective and safer for the government. Indeed, this debacle also has the potential to re-open the already seeping wound that is the question of public works. The fall of Carillion will most certainly be utilised by those wishing for increased public investment in infrastructure projects. I don’t blame them. Its easy to see why many believe public projects to be the answer to issues such as those Carillion highlights. But, with the Tories in power, the chances of change in this respect are virtually nil. A party so ideologically bent on privatisation and far to close, in bed even, with large firms like Carillion will never change course: the humiliation would be too great.

The death of Carillion has been slow but certain, it isn’t the first and won’t be the last, I only pray that lessons are learned.